Volvo, Its Sales Flagging, Lands Critical China Bank Loan

By Anna Molin

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A Volvo S60 at last month’s Los Angeles auto show.

STOCKHOLM—Struggling Volvo Car Corp. will borrow €922 million ($1.2 billion) from China Development Bank to refinance existing loans while continuing to seek additional funding from the bank to bolster its finances and fund ambitious expansion goals.

The deal comes two years after Volvo was purchased by Chinese conglomerate Zhejiang Geely Holding Group Co. from Ford Motor Co. for $1.3 billion. In a statement on Thursday, Volvo said the loan was secured “under the umbrella of a strategic partnership” and is a “testament” to China Development Bank’s confidence in its business plan.

The two parties signed a preliminary agreement in April.

The financing agreement represents a critical lifeline for the auto maker at a time when its sales are falling, financial losses are climbing and its new chief executive is trying to boost sales performance in China. The high cost of product development in the auto industry is forcing Volvo to raise more cash.

Volvo is one of the few international auto brands not owned by a major international car maker. Industry observers see its plight as a proxy for whether the Chinese auto industry can succeed on a global stage.

The loan announced on Thursday is a “first step” in what promises to be a hefty financial arrangement. The €922 million loan runs to 2020 and will be used to repay other loans, including a 3.55 billion kronor ($534.4 million) state-guaranteed loan that Volvo received from the European Investment Bank.

Volvo Car spokesman Per-Åke Fröberg said the company expects more financial support to come. “In a second step, we will discuss additional credits that can create more stability for us and support our strategy and business plan,” Mr. Fröberg said.